20 years of a floating New Zealand dollar

The Reserve Bank noted that
this week marks the 20 year anniversary of the float of the
New Zealand dollar. The decision to float the exchange
rate on 4 March 1985 reflected a growing consensus among the
developed countries, that it is impossible for a country to
choose the level of the exchange rate, the rate of domestic
inflation, and the level of interest rates simultaneously.
New Zealand, in line with other developed economies, made
the policy decision to achieve and maintain low and stable
domestic inflation, leaving the exchange rate free to float.

Before adopting a floating exchange rate, New Zealand had
experienced a variety of exchange rate mechanisms, including
a crawling peg between June 1979 and June 1982, and fixing
the exchange rate against a basket of currencies between
1982 and 1985. Under these arrangements, the Reserve Bank
acted as a residual buyer or seller, trading foreign
exchange in whatever quantities were necessary to support
the exchange rate.

The floating exchange rate regime has
weathered several business cycles and plenty of 'shocks'.
Events included the share market collapse in the late 1980s,
the transition to low and stable inflation in the early
1990s, the Asian financial crisis, several droughts and
large commodity price fluctuations. Throughout the
period, the exchange rate has played an important buffering
role for the economy, tending to depreciate in tough times
and appreciate in good times. Over time, businesses have
become increasingly aware of the impact of the exchange rate
cycle on their business plans and increasingly sophisticated
in managing these swings.

The New Zealand dollar is now
the 11th most traded currency in the world, with daily
turnover in the New Zealand market of around $7.5 billion.
The New Zealand dollar is now part of an international
system known as continuous linked settlement (CLS) by which
both legs of financial transactions can be settled
simultaneously.

The Bank marked the 20 year anniversary
of the float by hosting a function, attended by banking
sector representatives and other key players at the time of
the float.

ALSO:

“We are currently working closely and in partnership with local councils and other stakeholders to make the right long-term decision. It’s vital we have strong support on the new route as it will represent a very significant long-term investment and it will need to serve the region and the country for decades to come.” More>>

Scoop.co.nz has been a fixture of New Zealand’s news and Public Relations infrastructure for over 18 years. However, without the financial assistance of those using Scoop in a professional context in key sectors such as Public Relations and media, Scoop will not be able to continue this service... More>>

The Insurance Council of New Zealand (ICNZ) announced today that 2017 has been the most expensive year on record for weather-related losses, with a total insured-losses value of more than $242 million. More>>